Bankruptcy and Restructuring
This section shall briefly explain the meaning, the parties, requirements, the impacts, and procedures of bankruptcy to provide the reader a general understanding of the bankruptcy legal framework in Indonesia.
Overview of Bankruptcy
Bankruptcy is the general confiscation of all property of Bankrupt Debtors, the administration and settlement of which is carried out by the Receiver under the Supervisory Judges as regulated under the Law No. 37/2004. There are requirements that need to be fulfilled in order for a Debtors to become a Bankrupt Debtors are Debtors have two or more Creditors and failed to pay off at least one debt which is due and collectible who shall be declared bankrupt with a Court decision, at their own request or at the request of one or more of their Creditors.
According to the Elucidation of Article 2 paragraph (1) of Law No. 37/2004, due and collectible debt means a legal obligation to pay for due debt, either because it has been agreed, because the acceleration of the collection time as agreed, because of the imposition of sanctions or fines by the competent authority, or because of a court decision, arbitrator, or arbitral tribunal.
In relation to the Creditors, there are 3 (three) types of Creditors acknowledged under the Elucidation of Article 2 paragraph (1) Law No. 37/2004, namely Concurrent Creditors, Separatist Creditors, and Preferred Creditors. These Creditors have legal right to apply for bankruptcy petition without losing their collateral rights for the assets they have against the Debtor’s assets and their rights to come first.
In relation to filing of bankruptcy petition, the Debtor could be declared bankrupt by the Court decision either at their own request or at the request of one or more of their Creditors. The bankruptcy petition may also be filed by the public prosecutor’s office for public interest which are described as follows:
the Debtor runs away;
the Debtor embezzles part of the assets;
the Debtor has a debt to a State-Owned Enterprise or other business entity which collects funds from the public;
the Debtor has debt originating from raising funds from the wider community;
the Debtor does not act in good faith or is not cooperative in resolving the problem of overdue debts; or
in other matters according to the Attorney General's office is in the public interest.
Other parties may also file bankruptcy petition depending on who the debtors are as shown in the following table:
Authorized Creditors for Filing Bankruptcy Petition in Accordance with the Type of the Legal Entity of the Bankrupt Debtors
Source: Law No. 37/2004.
In the event bankruptcy petition is filed by the Debtors who are still bound in a legal marriage, the application may only be filed with the consent of the husbands or wives. Therefore, the Bankrupt Debtors shall include the wives or husbands of the Bankrupt Debtors in the event they are married in an assets association. However, the consent of the husband or wife is not needed in the event there is no assets association between the husband and the wife.
In the event the Creditors would like to file a bankruptcy petition for a firm then Creditors are required to input the name and residence of each participant who is jointly and severally bound for the entire debt of the firm. There are several legal impacts on filing bankruptcy petition as follows:
The Debtors shall by law forfeit their rights to control and manage their property
The Debtors shall by law forfeit their rights to control and manage their property, which are included in the bankruptcy property, from the date the decision on bankruptcy is rendered which shall be calculated from 00.00 local time. Nevertheless, the transfer of funds through banks or other non-bank institutions at the date of the decision prior to the rendering of the decision on bankruptcy must proceed. Likewise, a securities transaction which has been executed at the Stock Exchange prior to the decision on bankruptcy must be settled as well.
It is important to note that bankruptcy include all property of the Debtor at the time the decision on bankruptcy declaration is rendered as well as anything obtained during the bankruptcy excluding the following:
assets, including animals that are really needed by Debtors in relation to their work, their equipment,
medical devices used for health purposes, beds and equipment used by Debtors and their families, and
food ingredients for 30 (thirty) days for Debtors and their families, which are in the place;
anything obtained by the Debtors from their own work as a salary for a position or service, as a wage, pension, waiting fee or allowance, insofar as it is determined by the Supervisory Judge; or
money provided to Debtors in order to fulfill an obligation to provide a living under the law.
The Receiver shall be legally authorized to control and manage the property of the Bankrupt Debtors
Given that the Debtors forfeit their rights to control and manage their property, any contract of the Debtors that is issued after the decision on bankruptcy must no longer be paid with the bankruptcy property, unless if such contract is beneficial for the bankruptcy property. Moreover, lawsuits regarding rights or obligations to bankruptcy property must be filed by or against the Receiver. In the event the lawsuits are filed or proceeded by or against Bankrupt Debtors and the lawsuit results in a sentence of Bankrupt Debtors, said sentence shall not have any legal consequences upon the bankruptcy property.
The receiver shall be given an opportunity within a certain period determined by the judge to take over a lawsuit filed by the Debtors and which is ongoing for the course of the bankruptcy upon the request of the defendant. In the event (i) the Receiver does not heed the summons or (ii) the Receiver refuses to take over said case, the defendant has the right to request that the case be dismissed. The case could also proceed between the Debtors and the defendant by excluding the bankruptcy property. Furthermore, without a summons, the Receiver shall at any time be authorized to take over the case and request that the Debtor be removed from the case.
Should the Receiver decide on proceeding the case against a counterparty, the Receiver may also file for the annulment of any actions which are committed by the Debtors before the person in question are declared bankrupt given that the Debtors’ actions are committed with the intention of harming the Creditor and that it was known to the counterparty.
Immediate annulment of all execution ruling by a court
Any decision on bankruptcy declaration shall result in the immediate annulment of all execution ruling by a court toward any part of the property of the Debtor which was initiated prior to the bankruptcy, and since then, no decision may be executed, including or by holding the Debtor hostage. In the event there are confiscations which have been conducted then it shall be nullified and the Supervisory Judge could also order the write-off. Nevertheless, the sale of assets of the Debtors, both current and fixed, may be proceeded by the Receiver with the sale at the expense of the bankruptcy property with the permission of the Supervisory Judge in the event that prior to the rendering of the decision on bankruptcy for the purpose of the execution has gone so far that the date of the sale of said assets have been agreed determined.
Likewise, any agreement with the intention of transferring the land rights, transfer of names of ships, encumbrance of mortgage, hypothec or fiduciary security which have been agreed beforehand, cannot be executed after the decision on bankruptcy has been rendered.
The continuity of other unfulfilled agreements
In the event there are other reciprocal agreements which have not been or have only been partially fulfilled, the party that entered into the agreement with the Debtors may request the Receiver to provide certainty on the continuation of the implementation of said agreement within the period agreed by the Receiver and the party in question. Should the Receiver and the party failed to reach an agreement regarding the period, the Supervisory Judge shall determine the period. The agreement should be terminated and the party may demand compensation and will be treated as Concurrent Creditor if the Receiver does not provide an answer or is unwilling to continue the implementation of the agreement.
In the event the Receiver declares his or her ability to fulfill the agreement then he or she must provide a guarantee of its ability to implement said agreement. However, those abovementioned stipulation shall not apply to the agreement which requires the Debtors themselves to perform the agreed actions.
An unfulfilled agreement which stipulates a handover of commodities that are normally traded for a certain period of time, in which the party who should be delivering said commodities before the handover is conducted is declared bankrupt, shall be written off by the rendering of the decision on bankruptcy and the harmed counterparty in the agreement may apply as a Concurrent Creditors to obtain compensation. Similarly, if the unfulfilled agreement is that of lease, the Receiver and the lessor may terminate the lease agreement provided a termination notification is made prior to the expiry of the agreement in accordance with local customs, which is according to the agreement or according to the practice for a minimum period of 90 (ninety) days must also be taken into account.
Workers of the Bankrupt Debtors
Workers of the Bankrupt Debtors or the Bankrupt Debtors may terminate the employment agreement by taking into account the period of time in accordance with the approval or the provisions of prevailing laws and regulations, with the understanding that said employment relationship may be terminated with a notice at least 45 (forty-five) days prior. It is important to note that the wages payable before or after the rendering of the decision on bankruptcy shall constitute bankruptcy property.
Procedural Law on Bankruptcy
This section shall briefly explain the procedural law on Bankruptcy to provide the reader a general understanding of legal procedures regarding bankruptcy in Indonesia. According to the Law No. 37/2004, the procedure of bankruptcy may be outlined and described as follows:
Filing the Bankruptcy Petition
The Debtors and/or Creditors may file bankruptcy petition to the Head of the Court as long as the requirements to file said bankruptcy petition are met. In the event the requirements have been met, Registrars shall register an application for bankruptcy on the date the application is filed, and the applicant shall be given a written receipt signed by an authorized official with the same date as the registration date. The registrar shall deliver the application for bankruptcy to the Head of the Court within a maximum period of 2 (two) days after the date the application is registered.
The Court shall then study the application and determine the day of hearing within a maximum period of 3 (three) days after the date of registration of the application for bankruptcy. The hearing on application bankruptcy shall be held within a maximum period of 20 (twenty) days after the date the application is registered. The court may postpone the hearing the organization of the hearing until no later than 25 (twenty-five) days after the date the application is registered.
Summons of Debtors and Creditors
A court must summon the Debtors in the event the application for bankruptcy declaration is filed by Creditors, Public Prosecutor’s Office, BI, BPPM or Minister of Finance. Meanwhile, a court may summon Creditors in the event the application for bankruptcy is filed by the Debtor and there is any doubt that the requirements to be declared bankrupt have been fulfilled. Summons shall be conducted by bailiff through a registered express mail by no later than 7 (seven) days before the first hearing is held to be considered valid and shall be deemed to have been received by the Debtor.
Examination of Bankruptcy Petition and Bankruptcy Decision
The application for bankruptcy shall be granted if there is a fact or condition which prove in a simple way that the requirements to be declared bankrupt have been fulfilled. Court decision on bankruptcy petition shall be rendered no later than 60 (sixty) days after the date the bankruptcy petition is registered. The court decision must also contain (i) certain articles of the relevant laws and regulations and/or unwritten sources of law which are used as the basis for the adjudication and (ii) legal considerations and dissenting opinions of the member judges or the head of the panel.
Under a decision on bankruptcy declaration, a Receiver and a Supervisory Judge from a judge in the Court shall be appointed. The Debtor, Creditor, or the authorized party to file a bankruptcy petition has a legal right to submit a proposal for the appointment of a Receiver to the Court and in the event said proposal for the appointment of the Receiver is not submitted then the Property and Heritage Agency shall be appointed as the Receiver.
The copy of the court decision must be delivered by the bailiff through a registered express mail to the Debtor, the party filing the bankruptcy petition, the Receiver, and the Supervisory Judge by no later than 3 (three) days after the date of the bankruptcy petition is rendered. As long as any bankruptcy petition has not yet been rendered, any Creditor, public prosecutor’s office, BI, and BPPM or the Minister of Finance may file an application to the Court to:
place a collateral foreclosure of any part or all of the property of the Debtor; or
appoint a temporary Receiver to supervise:
the management of the Debtor’s business; and
payment to Creditors, transfer or collateral of the property of Debtor which, in bankruptcy, are under the authority of the Receiver.
Said application may only be granted if it is necessary in order to protect the interests of Creditors. In the event the application in point (i) abovementioned is granted, the Court may determine a condition that Creditors as the applicant provide a guarantee which is considered reasonable by the Court.
Legal Remedies for Bankruptcy Decision
Legal remedies that may be filed against a decision on bankruptcy petition are cassation to the Supreme Court. The cassation petition shall be submitted by no later than 8 (eight) days after the date of the rendering of the decision being petitioned for cassation, by registering it with the Registrar of the Court who has decided upon the bankruptcy petition. The cassation petition may also be filed by other Creditors who are not parties in the first level hearing and are dissatisfied with the decision on bankruptcy petition. The cassation applicant shall be given a written receipt signed by the Registrar on the same date of the relevant petition is submitted.
A cassation petitioner must submit a memory of cassation to the Court Registrar on the date the cassation petition is registered. The registrar must then deliver the cassation petition and memory of cassation to the cassation respondent by no later than 2 (two) days after the cassation petition is registered. The cassation respondent may submit a counter memory of cassation to the Court Registrar by no later than 7 (seven) days after the date upon which the cassation respondent receives the memory of cassation, and the Court Registrar must deliver the counter memory of cassation to the cassation petitioner by no later than 2 (two) days after the counter memory of cassation is received. The cassation petition, a memory of cassation, and a counter memory of cassation along with the files of the relevant case shall be submitted by the Registrars to the Supreme Court by no later than 14 (fourteen) days after the date the cassation petition is registered.
The Supreme Court must study the cassation petition and determine the day of hearing no later than 2 (two) days after the date the cassation petition is received by the Supreme Court. The Supreme Court shall then conduct a cassation petition hearing by no later than 20 (twenty) days after the date the cassation petition is received by the Supreme Court. A decision on a cassation petition shall be rendered by no later than 60 (sixty) days after the date the cassation petition is received by the Supreme Court. Said decision which contains the complete legal considerations underlying the decision shall be rendered in hearing that is open to public.
The Registrar of the Supreme Court must deliver a copy of the cassation decision to the Registrar of the Commercial Court by no later than 3 (three) days after the date of the cassation petition is received. A copy of cassation decision shall be delivered by the Court Bailiffs to the cassation petitioner, the cassation respondent, the Receiver, and the Supervisory Judge by no later than 2 (two) days after the decision of cassation is received.
A decision on a bankruptcy petition which has obtained permanent legal force may be filed for judicial review to the Supreme Court and the abovementioned stipulation shall apply for the judicial review.
The Supervisory Judge who have been appointed under the bankruptcy decision shall determine the day, date, time, and place of the first Creditor’s meeting that must be held within a maximum period of 30 (thirty) days after the date of bankruptcy decision is rendered. The Supervisory Judge shall lead the Creditor’s meeting by introducing him/herself, explaining his/her duties and responsibilities, introducing the Receiver, Debtor, Creditors, Court’s Registrar, followed by the explanation on the impact of bankruptcy to the Debtor including but not limited to the Debtor forfeit his/her right to control and manage his/her property and the Bankrupt Debtor shall not travel his/her domicile without the supervision of Supervisory Judge.
All decisions of the Creditor’s meeting shall be determined based on the affirmative vote of more than ½ (one half) of the total votes cast by the Creditor and/or the Creditor’s proxy present at the relevant meeting. In the event a Creditor attends a Creditor’s meeting and does not exercise the voting rights, his/her voting rights shall be counted as a negative vote. The transfer of receivables which is carried out by splitting the receivables after the bankruptcy decision is rendered shall not give rise to voting rights for new Creditors, unless the transfer is carried out in its entirety. It is important to note that Creditors who have voting rights are Creditors who are acknowledged, Creditors who are accepted with conditions, and bearers of an at sight receivable that has been verified.
Verification of Receivables
The Supervisory Judge must determine (i) the deadline for submitting invoices, (ii) the deadline for tax verification to determine the amount of tax liability in accordance with the laws and regulations in taxation sector, (iii) day, date, time and place of the Creditors meeting to conduct the verification of receivables, no later than 14 (fourteen) days after the bankruptcy decision is rendered. All Creditors are required to submit their respective receivables to the Receiver accompanied by calculations or other written statements showing the nature and amount of the receivables, accompanied by proof or a copy thereof, and a statement whether or not the Creditor has privilege, lien, fiduciary security, mortgage, hypotec, other collateral rights, or the right to withhold assets.
The Bankrupt Debtor is obliged to be present during the verification of receivables and shall be deemed to agree with all the receivables submitted by the Creditors should the Bankrupt Debtors does not present during said verification.
The Receiver is obligated to enter the approved receivables into a list of receivables that are currently being acknowledged, while the denied receivables including the reasons are included in a separate list. The Receiver is obligated to provide at the Court Registrar’s Office a copy of each list for 7 (seven) days before the day of verification of the receivables, and everyone can view them free of charge.
The Bankrupt Debtor is obliged to be present in person at the receivables verification meeting, in order to provide the information requested by the Supervisory Judge regarding the causes of bankruptcy and the condition of the bankruptcy property.
Composition Plan and Settlement Agreement
Bankrupt Debtors have the right to offer a settlement to all Creditors. In the event the Bankrupt Debtor submit the composition plan and by no later than 8 (eight) days prior to the receivables verification meeting and such composition plan must be discussed and a decision taken immediately after the verification of the receivables is completed except in specified matter. Separatist Creditors, including Creditors who take precedence who are denied, may not cast a vote in relation to the composition plan, unless they have waived their rights to take precedence in the interests of bankruptcy property prior to the holding of a voting on the composition plan. In the event the Separatist Creditors waive their rights, they become Concurrent Creditors.
The composition plan is accepted if it is approved at the Creditors meeting by more than ½ (one half) of the number of Concurrent Creditors who are present at the meeting and whose rights are acknowledged or temporarily acknowledged, which represent at least 2/3 (two thirds) of the total acknowledged or temporarily acknowledged or temporarily acknowledged concurrent receivables from the Concurrent Creditors or their proxies who are present at the meeting. If more than ½ (one half) of the number of Creditors present at the Creditors meeting and representing at least ½ (one half) of the total receivables of Creditors with voting rights agree to accept the composition plan, within the maximum period of 8 (eight) days after the first voting is held, second voting is held, without the need for a summons. In the second voting, Creditors are not bound by the votes cast in the first voting.
In the event the composition plan is accepted before the meeting is closed, the Supervisory Judge shall determine the date of the court hearing which will decide whether or not the composition plan is validated. The court hearing must be held no earlier than 8 (eight) days and no later than 14 (fourteen) days after the receipt of the composition plan at the creditor’s meeting. The validated settlement applies to all Creditors who do not have the right to take precedence, with no exceptions, whether or not they have filed for bankruptcy.
In the event that the validation of settlement is rejected, the Bankrupt Debtor can no longer offer the settlement in the bankruptcy. After the validation of the settlement obtains permanent legal force, the Receiver is obliged to carry out accountability to the Debtor before the Supervisory Judge.
If a composition plan is not proposed in the receivables verification meeting, the proposed composition plan is not accepted, or the validation of the settlement is rejected based on decision that has obtained permanent legal force, the bankruptcy property is in a state of insolvency due to law.
In the event composition plan is not proposed in the receivables verification meeting or the proposed composition plan is not accepted, the Receiver or Creditor present at the meeting may propose that the Bankrupt Debtor’s company be continued. If there is a Creditors committee and a proposal is submitted by the Creditor, the Creditors committee and the Receiver must provide an opinion regarding the proposal. At the request of the Receiver or one of the Creditors who are present, the Supervisory Judge shall postpone the discussion and decision making on the proposal until a meeting is determined no later than 14 (fourteen) days afterward.
The proposal to continue the company must be accepted if the proposal is approved by Creditors representing more than ½ (one half) of all temporarily acknowledged and accepted receivables which are not secured by lien, fiduciary security, mortgage, hypothec, or other collateral rights. The minutes of meeting must contain the names of the Creditors present, the votes cast by each Creditor, the results of the voting, and everything that happened at the meeting. Said minutes of meeting shall be provided no later than 7 (seven) days after the closing date of the meeting at the Court Registrar’s Office.
Administration of Bankruptcy Property
The administration of bankruptcy property shall be conducted by the Receiver and the Supervisory Judge who are appointed by the Judge in the Bankruptcy Decision. In the event the Debtors, Creditors, or other parties who are authorized to file a bankruptcy petition does not submit a proposal for the appointment of a Receiver to the Court, then the Property and Heritage shall be appointed as the Receiver. The appointed Receiver must be independent, have no conflict of interest with the Debtors and Creditors, and are not currently handling bankruptcy cases and suspensions of debt payment obligations for more than 3 (three) cases.
The Receiver is authorized to carry out the administration and/or settlement of the bankruptcy property from the date of the bankruptcy decision is rendered even though there is a cassation or judicial review of said bankruptcy case. In the event the cassation decision or the judicial review determines that said bankruptcy decision shall be annulled, then Receiver must announce said annulment decision in an Official Gazette and the Panel of Judges which annuls said bankruptcy decision shall determine the bankruptcy costs and the Receiver’s service fee.
After being appointed by the Court, the Receiver shall announce the summary of the bankruptcy decision in an Official Gazette of the Republic of Indonesia and at least 2 (two) daily newspapers determined by the Supervisory Judge. Since the date of his/her appointment, the Receiver must take every effort to secure the bankruptcy property and keep all letters, documents, money, jewelry, securities, and other marketable securities by providing a receipt.
The Receiver must take a record of the bankruptcy property no later than 2 (two) days after receiving the decision on his/her appointment as Receiver. The recording of bankruptcy property can be carried out privately by the Receiver with the approval of the Supervisory Judge. Immediately after recording the bankruptcy property, the Receiver must make a list stating the nature, number of receivables and debts of the bankruptcy property, the name and residence of the Creditors and the amount of each Creditor’s receivables.
In the event within 8 (eight) days after the decision which refuses to validate the settlement obtains a permanent legal force, the Receiver or Creditor shall submit a proposal to the Supervisory Judge to continue the Bankrupt Debtor’s company, the Supervisory Judge is obliged to hold a meeting no later than 14 (fourteen) days after the proposal is submitted to the Supervisory Judge.
At the request of the Creditor or Receiver, the Supervisory Judge may order the continuation of the company to be terminated. In the event there is said request, the Creditors committee, if any, must be heard and the Receiver must also be heard if the
proposal is not submitted by the Receiver. The Supervisory Judge can also hear the Creditors and Debtors.
The Receiver must initiate settlement and sale of all bankruptcy property without the need for approval or assistance from the Debtor if:
The proposal to manage the Debtor’s company was not submitted within the period as regulated under this Law, or the proposal has been submitted but was rejected; or
Administration of the Debtor’s company is terminated.
All assets must be sold in public in accordance with the procedures specified under laws and regulations. Should the sale in public is not achieved, the sale in private can be carried out with the permission of the Supervisory Judge.
After the bankruptcy property are in the state of insolvency, the Supervisory Judge may hold a Creditor meeting on the day, hour, and place determined to hear them as necessary regarding the settlement of the bankruptcy property and hold verification of receivables which is registered after the expiration of the grace period.
The Receiver is obligated to compile a distribution list which contains the revenue and expenditure details including the Receiver’s wages, the Creditor’s name, the verified amount of each receivable, and the portion that must be received to the Creditor, to be approved by the Supervisory Judge. The portion which shall be given by the Supervisory Judge is in accordance with the various position of the Creditors in which the portion received by the Concurrent Creditors shall be determined by the Supervisory Judge and as for the portion of the Separatist and Preferred Creditors shall be proceeded from the sale of assets over which they have privilege or which have been pledged as collateral to them.
The distribution list that have been approved by the Supervisory Judge must be made available at the Court Registrar’s Office so that it can be seen by the Creditors during the grace period determined by the Supervisory Judge at the time the list is approved. The Receiver shall immediately pay the distribution that has been determined after the end of the grace period or in the event a challenge has been filed after the decision on the challenge case has been rendered. After the immediate payment of receivables to the verified Creditors or as soon as the closing distribution list become binding, the bankruptcy shall end.
The abovementioned process of bankruptcy can be understood from the flowchart as follows:
Procedurs of Bankruptcy
Source: Law No. 37/2004
This section shall briefly explain the meaning, the parties, requirements, the impacts to provide the reader a general understanding of what restructuring is like in Indonesia.
Overview of Restructuring
Restructuring is legally known as suspension of debt payment obligation according to Law No. 37/2004. The restructuring is a procedure carried out by Debtors to avoid bankruptcy. Debtors who are unable or estimate to be unable to continue paying their debts which are due and collectible, may request a Restructuring obligation, with the intention of submitting a composition plan which includes an offer to pay part or all of their debts to Creditors. Meanwhile, Creditors who estimate that the Debtors are unable to continue paying their debts which are due and collectible may request that the Debtors be given a Restructuring, in order to allow the Debtors to propose a composition plan which includes an offer to pay part or all of their debts to their Creditors. In essence, a Debtor or Creditor may purpose a restructuring if: (i) the Debtor has more than one Creditor; and (ii) the Debtor is unable to, or it has been predicted by either the Debtor or their Creditors that the Debtor will be unable to, settle debts that are due and payable.
Restructuring cases are different from bankruptcy cases as restructuring are not based on any condition whereby a Debtor has merely failed to settle the relevant due and payable debts or is in a condition of insolvency. Moreover, a restructuring does not encompass any intention to dissolve the Debtor’s assets.
It should also be noted that restructuring cases will be prioritized over bankruptcy cases. This means that if a bankruptcy petition and a restructuring petition are to be examined simultaneously, then the restructuring petition must be resolved first. The foregoing condition will also apply even if a bankruptcy petition is submitted before a restructuring petition.
The parties in restructuring are quite similar to those in bankruptcy in which the parties are the Debtors, Creditors, Administrator and Supervisory Judge. Unlike bankruptcy, restructuring does not cause the Debtor to lose his or her authority to manage the assets.
Procedural Law on Restructuring
The following section will elaborate upon the various provisions contained within the handbook which relate to the parties which may submit Restructuring petitions, along with the requirements and procedures for the processing of such petitions, as well as follow-up measures which are to be implemented after a Restructuring decision has been handed down.
Filing of Restructuring Petition by the Eligible Applicants
Petitions for Restructuring may be submitted by parties similar to those addressed in the above section on bankruptcy, with the exception of the Attorney General’s Office, the Minister of Finance and Receivers.
A restructuring petition should be submitted to the relevant commercial court along with various required documents which differ based on the relevant type of petitions as elaborated upon in the table below:
Required Documents for the Submission of Restructuring Petition
Source: Decree No. 109/2020.
It is important to note that all restructuring petitions, with the exception of any petitions which are submitted by individual Debtors or Creditors, must also be signed by the directors, Administrators or owners of the relevant entities.
Summons of Debtors and Creditors
After the restructuring petition has been filed, the Court shall summon the relevant parties for the Court hearing. In the event the restructuring petition is filed by the Creditors, the Court shall summon the Debtor and should the Debtor fails to appear before the Court, the Court shall send another summons to the Debtor. Should the Debtor fails for the second time to appear before the Court, the Court shall proceed with the restructuring proceeding after declaring the acceptance of restructuring petition without the attendance of the Debtor. However, in the event the Creditors fail to appear before the Court after being summoned without any legal reasons then the Court shall disqualify the restructuring petition.
Examination of Restructuring Petition and Temporary Restructuring Decision
In the event the restructuring petition is submitted by the Debtor, the Court shall grant the temporary suspension of the payment obligation and shall appoint a Supervisory Judge from the Court Judges as well as appoint 1 (one) or more administrators who manage the Debtor’s property together with the Debtor within a maximum period of 3 (three) days from the date of registration of the petition. However, the Court shall grant the temporary suspension of payment obligation within a maximum period of 20 (twenty) days from the date of the registration of the restructuring petition.
The consideration to grant the decision on temporary restructuring depends on the simple nature of the facts and circumstances, namely.
Debtors are proven to have 2 (two) or more Creditors;
Debtors did not pay in full 1 (one) debt that was due and collectible; and
Difference in the debt amount did not hinder the Court to grant the restructuring petition.
After the Decision on the temporary restructuring is rendered, the Court through the administrator must summon all known Debtors and Creditors to appear before a hearing held no later than the 45th (forty-fifth) day since a decision on the temporary restructuring is rendered. In the event the Debtor does not appear before the Court, the temporary restructuring shall immediately expires and the Court is obliged to declare the Debtor as Bankrupt Debtor in the same court hearing.
The Administrator shall immediately announce the decision on the temporary restructuring in the Official Gazette in at least 2 (two) daily newspapers appointed by the Supervisory Judge and said announcement must contain invitations to attend the hearing upon the deliberation of the Judges including the date, place, and time of the relevant hearing, the name of the Supervisory Judge and the name and address of the Administrator. Should the Debtor proposed a composition plan at the time the decision on temporary restructuring is rendered, then the announcement must be made within the maximum period of 21 (twenty-one) days prior to the date of the planned hearing. The temporary restructuring shall be effective from the date when the decision on the temporary restructuring is rendered and shall last until the date of the hearing. It is important to note that the legal remedy is cassation in the event a party does not agree with the decision on temporary restructuring.
The Supervisory Judge shall lead the Creditor’s meeting by introducing him/herself, explaining his/her duties and responsibilities, introducing the Receiver, Debtor, Creditors, Court’s Registrar. In said court hearing, the Court must hear the Debtor, Supervisory Judge, Administrator, and Creditors who are present, their representatives, or their proxies who are appointed based on a power of attorney. Every Creditor has the right to attend even if the person concerned does not receive a summons for it. In the event the composition plan is attached to the restructuring petition or has been submitted by the Debtor prior to the hearing, then a voting on the composition plan may be conducted.
The composition plan is accepted based on:
approval of more than ½ (one half) of the number of concurrent Creditors whose rights are acknowledged or temporarily acknowledged and who are present at the Creditors meeting, including the Creditors, which jointly represent at least 2/3 (two thirds) of all claims which are acknowledged or temporarily acknowledged from the concurrent creditors or their proxies who are present at the meeting; and
approval of more than ½ (one half) of the number of Creditors whose receivables are secured by lien, fiduciary security, mortgage, hypothec, or other collateral rights which are present and represent at least 2/3 (two thirds) of the total claims of said Creditors or their proxies who are present at the meeting.
The Creditors who do not approve the composition plan shall be compensated in the amount of the lowest value among the collateral value or the actual value of the loan which is directly secured with the collateral right.
Verification of Receivables
The verification of receivables shall be carried out after the submission of receivables from the Creditors. The Supervisory Judge shall lead the verification of receivables by explaining its mechanism such as the rules of verification of receivables, every receivable must be supported by evidence, every rebuttal on receivable including but not limited to the status of Creditors, amount of receivable, and the ranking of Creditor must be submitted to the Supervisory Judge. The Supervisory Judge shall accept the list of temporary acknowledged receivables and temporary not acknowledged receivables from the Administrator. The Creditors then give a chance for the Creditors, Debtors, and Administrator to accept or decline said list of receivables read by the Supervisory Judge. Supervisory Judge is obliged to reconcile the objection between parties. Should the objection between parties fails to be reconciled, the Supervisory Judge shall decide with a Decree.
In the event the Creditors have not been able to cast their votes on the composition plan, then at the request of the Debtor, the Creditor shall determine whether to grant or to reject a permanent restructuring with the purpose to enable the Debtor, Administrator, and Creditors to consider and approve the composition plan at the next meeting or hearing. Moreover, permanent restructuring could also be granted in the event a composition plan has not been submitted by the Debtor. In essence, temporary restructuring will end and permanent restructuring will simultaneously commence if:
the Debtor in a temporary restructuring fails to submit a composition plan within 45 days and requests an extension which is then approved by the Creditors;
a composition plan has been submitted but deliberations of said plan have not yet been completed and, as a result, the Debtor requests an extension that is approved by the Creditors.
The Court shall grant the permanent restructuring including its extension based on the following:
The approval of more than ½ (one half) of the number of concurrent creditors whose rights are acknowledged or temporarily acknowledged, and who are present and represent at least 2/3 (two-thirds) of all claims which are acknowledged or temporarily acknowledged from the concurrent creditors or their proxies who are present at the hearing; and
The approval of more than ½ (one half) of the number of creditors whose receivables are secured by lien, fiduciary security, mortgage, hypothec, or other collateral rights, and who are present and by represent at least 2/3 (two thirds) of the total receivables of creditors or their proxies who are present at the hearing.
Should the Court fail to determine the permanent restructuring within the time period, the Debtor shall be declared bankrupt within said period. Moreover, the Debtor shall also be declared bankrupt in the event the composition plan is not agreed upon during the temporary restructuring or during the permanent restructuring or the Court rejects the validation of composition plan.
However, in the event the permanent restructuring is approved, such restructuring and its extension shall not exceed 270 (two hundred seventy) days after the decision on the temporary restructuring is rendered. It is important to note that there is no legal remedy for (i) decision on permanent restructuring and (ii) the decision that decides Debtor as Bankrupt Debtor in the restructuring process.
It is important to note that should the permanent restructuring be granted then creditor’s meeting and verification of receivables shall be convened given that the main purpose of permanent restructuring is to provide the opportunity to submit composition plan to the Debtor.
Composition Plan and Settlement Agreement
There are three opportunities in which the Debtor may file for a composition plan, namely
(i) simultaneously with restructuring petition, (ii) during the process of examination of restructuring petition, and (iii) after decision on restructuring is rendered. Should the Debtor uses any of his/her given opportunity to submit a composition plan then the Creditors shall convene a creditor’s meeting to vote whether to grant or to decline said composition plan. In the event the composition plan is accepted, the Supervisory Judge shall determine and instruct the parties to a court hearing in which the composition plan shall be validated, and on such determined date the Administrator and Creditors may submit the reasons which led to the validation or rejection of the composition plan.
The Court shall then validate the settlement agreement in a court hearing which shall be convened at the latest on 14 (fourteen) days after the date of the said court hearing in which the parties may submit reasons relating to the validation or rejection of the settlement agreement. Reasons leading to the validation or rejection of said settlement agreement shall be included as consideration in the decision. Said settlement agreement should be rejected by the Court in the event of:
the debtor’s property, including assets for which the right to withhold assets are to be exercised, is substantially greater than the amount agreed in the settlement;
the implementation of settlement is not guaranteed;
the settlement is achieved due to fraud, or collusion with one or more Creditors, or due to the use of other dishonest measures and regardless of whether the Debtor or any other parties cooperate to achieve this; and/or
service fees and costs incurred by experts and administrators have not been paid and there are no guarantee for their payments.
Should any party disagree with the decision which validates the settlement agreement then said party could apply for cassation. However, there is no legal remedy for the decision which rejects the settlement agreement.
Settlement agreement which has been validated by the Court shall bind every Creditors excluding the Creditors who have privilege, lien, fiduciary security, mortgage, hypotec, other collateral rights, or the right to withhold assets.
If the ratification of settlement agreement is rejected, then the debtors will immediately be declared bankrupt as well as Supervisory Judge and Receiver shall be appointed. The Creditors who do not approve the composition plan shall be compensated in the amount of the lowest value among the collateral value or the actual value of the loan which is directly secured with the collateral right.
Restructuring process shall end by law in the event the decision on validation of settlement agreement is reached and become legally binding. The Administrator shall then announce the termination on restructuring in 2 (two) daily newspaper and Official Gazette. If the ratification is rejected, then the debtors will also be declared bankrupt.
Termination on the Restructuring, Insolvency and Administration of Bankruptcy Property
A Restructuring may come to an end upon a request being made by the relevant supervisory judge, creditor(s) or panel of judges. Furthermore, Restructuring may be terminated if:
the Debtor acts in bad faith during the Restructuring period;
the Debtor has harmed or tried to harm the Creditors;
the Debtor administers the assets without the permission of the Administrator;
the Debtor fails to undertake actions required during the Restructuring period;
the condition of the debtor’s assets is deemed unfit for the continuance of the Restructuring period; and
the debtors are assessed as being unable to fulfill their obligations to the creditors in due time.
The Administrator is obliged to request for the termination of restructuring in the event of the Debtor acts in bad faith during restructuring and the condition of Debtor’s asset is not possible to continue the restructuring. In the court hearing which the agenda of restructuring termination then the explanation of petitioner, Debtor, and Administrator shall be heard. The examination on termination of restructuring shall end within 10 (ten) days after the submission of petition and said court decision shall be announced within 10 (ten) days. In the event the restructuring is ended, the Debtor shall immediately be declared as Bankrupt Debtor and shall be announced in 2 (two) daily newspapers and Official Gazette as well as uploaded into the system.
Based on the abovementioned, the Debtor shall be declared as Bankrupt Debtor both in the temporary and permanent restructuring depending on the condition as follows:
Debtor could not attend the first creditor’s meeting until the next creditor’s meeting and at the latest on 45 (forty-fifth)
Debtor shall not submit a composition plan;
Concurrent Creditors and Separatist Creditors do not accept on permanent restructuring;
Composition plan which was submitted was not agreed by the Creditors;
Decision on the termination of temporary restructuring.
Debtor does not submit a composition plan;
Composition plan which was submitted was not approved by the Creditors;
Decision on the termination of restructuring;
Decision on the rejection of settlement agreement.
Should the restructuring ends with insolvency and bankruptcy, then regulation as described above in the administration of bankruptcy property shall apply.
The abovementioned process of restructuring can be understood from the flowchart as follows:
Procedures of Restructuring
Source: Law No. 37/2004.
Based on the abovementioned, the readers could understand that bankruptcy and restructuring are two different legal mechanisms regulated under the Law No. 37/2004 for enabling the debtor to pay his/her/its debt to the creditors in accordance with the creditors order. There are many differences between bankruptcy and restructuring process, among others, as follows: